What the BlackBerry outage will cost RIM

The most severe BlackBerry service disruption in the history of Research In Motion Ltd. could cost the Canadian mobile device maker more than US$100-million in lost revenues.

As someargue the damage to RIM’s future ability to brand its smartphones as immensely reliable is near total, Wall Street is focusing more specifically on the financial impact from the three-day outage. RIM charges wireless carriers a monthly fee for each active BlackBerry user, Rod Hall of JPMorgan Chase and Co. reminded clients on Friday.

While acknowledging a large margin of error in his estimates as the specifics of carrier agreements are private, the analyst is nonetheless convinced RIM will have to give at least some of those fees back. Expecting a little over US$1-billion in service fee revenues for the company’s third quarter, set to end in November, Mr. Hall estimates 5¢ in lost earnings per share is possible.

“We calculate that each 1% lost at the top line represents about a penny of lost EPS,” he said.

“Given a large portion of global traffic looks potentially affected we believe that a 5% impact to service fee revenue is plausible though likely worst case.”

RIM has compensated its carrier partners for network outages in the past, Gus Papageorgiou of Scotia Capital told clients on Friday. But those were all too small to warrant a separate disclosure, the analyst said.

“This is the worst outage the company has experienced so we believe there is a decent chance the compensation will be larger,” said Mr. Papageorgiou.

“We estimate the worst case scenario is that RIM refunds a month’s worth of BlackBerry fees to its carrier partners for half of its subscriber base.”

With the global BlackBerry nation currently topping 70 million people, about 35 million refunds would be the high end of his estimate. Taking average user fees, gross margins and corporate tax rates into account, and Mr. Papageorgiou arrives at an estimate of US$117.7-million or roughly 22¢ in losses per share for RIM shareholders.

“We believe the company will have the situation under control before the weekend and that, as a result, it should not sustain any serious long-term damage to its brand or service,” he said.

“However, we advise investors to hold off until the situation is resolved before taking any drastic action.”

Investors appear to be heeding that advice, as RIM shares have been holding steady on the Toronto Stock Exchange for the first hour of Friday morning trading. Although the company could still be forced to give up even more cash to its carrier partners than current estimates predict.